The Balance Sheet of a Partnership Firm M/s Thomas & Associates consisted of two partners Albert and Andrew who were sharing Profits and Losses…

CA Foundation · Accounting · MTP · September 2024
The Balance Sheet of a Partnership Firm M/s Thomas & Associates consisted of two partners Albert and Andrew who were sharing Profits and Losses in the ratio of 5 :3 respectively. The position as on 31-03-2024 was as follows: Liabilities ₹ Assets ₹ Albert's Capital 8,20,000 Land & Building 7,60,000 Andrew's Capital 6,60,000 Plant & Machinery 3,40,000 Profit & Loss A/c 2,24,000 Furniture 2,18,960 Trade Creditors 1,09,600 Stock 2,90,520 Sundry debtors 1,20,000 Cash at Bank 84,120 18,13,600 18,13,600 On the above date, David was admitted as a partner on the following terms: (a) David should get - 1/5th of share of profits. (b) David brought - 4,80,000 as his capital and - 64,000 for his share of Goodwill. (c) Plant and Machinery would be depreciated by 15% and Land & Buildings would be appreciated by 40%. (d) A provision for doubtful debts to be created at 5% on sundry debtors. (e) An unrecorded liability of 12,000 for repairs to Buildings would be recorded in the books of accounts. (f) Immediately after David’s admission, Goodwill brought by him would be adjusted among old partners. Thereafter, the capital accounts of old partners would be adjusted through the current accounts of partners in such a manner that the capital accounts of all the partners would be in their profit sharing ratio. Prepare Revaluation A/c, Capital Accounts of the partners, new profit sharing ratio and Balance Sheet of the Firm after the admission of David.

Suggested Answer and Working Notes:

Revaluation Account Particulars ₹ Particulars ₹ To Plant & Machinery (₹ 3,40,000 x 15%) 51,000 By Land & Building A/c 3,04,000 To Provision for Bad & Doubtful Debts (₹ 1,20,000 x 5%) 6,000 To Outstanding Repairs to Building 12,000 To Albert’s Capital A/c (5/8) 1,46,875 To Andrew’s Capital A/c (3/8) 88,125 3,04,000 3,04,000 Capital Accounts of Partners Particulars Albert Andrew David Particulars Albert Andrew David To Albert’s Capital A/c - - 40,000 By Balance b/d 8,20,000 6,60,000 - To Andrew’s Capital A/c 24,000 By Revaluation A/c 1,46,875 88,125 - To Andrew’s Current A/c - 1,36,125 By Profit & Loss A/c 1,40,000 84,000 - To Balance c/d 12,00,000 7,20,000 4,80,000 By Bank 5,44,000 By David’s Capital A/c 40,000 24,000 By Albert’s Current A/c 53,125 12,00,000 8,56,125 5,44,000 12,00,000 8,56,125 5,44,000 Calculation of New Profit Sharing Ratio and gaining ratio: David’s Share of Profit = 1/5 = 2/10 Remaining Share = 1 - 1/5 = 4/5 Albert’s Share = 5/8 x 4/5 = 20/40 = 5/10 Andrew’s Share = 3/8 x 4/5 = 12/40 = 3/10 New Profit sharing Ratio = 5:3:2 Gaining ratio = 5:3 (same as old profit sharing ratio among old partners) Balance sheet of Thomas & Associates as on 31.3.2024 Liabilities ₹ Assets ₹ Capital Accounts: Land & Buildings 10,64,000 Albert 12,00,000 Plant & Machinery 3,40,000 Andrew 7,20,000 Less: Depreciation 51,000 David 4,80,000 24,00,000 2,89,000 Andrew’s Current A/c 1,36,125 Furniture 2,18,960 Trade Creditors 1,09,600 Stock 2,90,520 Outstanding Repairs to Building 12,000 Sundry Debtors 1,20,000 Less: Provision 6,000 1,14,000 Cash at Bank 6,28,120 Albert’s current A/c 53,125 26,57,725 26,57,725 Working Note: Required Balance of Capital Accounts David’s Capital after writing off Goodwill = 5,44,000 - 64,000 = 4,80,000 David’s Share of Profit = 1/5 Thus, Capital of the firm shall be = 4,80,000 x 5 = 24,00,000 Albert’s Capital = 24,00,000 x 5/10 = 12,00,000 and Andrew’s Capital = 24,00,000 x 3/10 = 7,20,000

Topics: Admission of a New Partner

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